Are we entering another bubble?

Ok, that's a fair counterpoint. I didn't mean to pick on Ashton specifically, but rather, to point out that others are following in his footsteps.

Also, on a side note: even though he'll never read this, I feel like I owe him a sincere apology for making a quick and general assumption about him. Seriously. More than happy to stand corrected about him personally.

The problem with arguments like yours is that they're so full of handwaving and vagueness that there's no obvious connection back to the only question that matters: how does a business make money?

How does Amazon make money? I give them money, and then they ship me a book, or download me a book, or deliver me some groceries, or spin me up a server, or ship me a Mac, or handle my fulfillment if I'm selling stuff, or a million other things, most of them in sectors like retail and logistics that are proven cash cows.

How does Facebook make money? I give them money and they show targeted advertisements to people who mostly proceed to ignore them. What? How is that worth more? I'm not saying it's worthless, in fact the entire point of my argument is that even viable businesses like Facebook are overvalued. I'm just saying it is overvalued.

You say there's upside, but if you take all the upside in their current business model and make the entire world population Facebook users, it still doesn't add up. So then what? There's upside in expansion, perhaps, except that's limited because of brand perception and reputation--Facebook's reputation is comparable to that of cable providers and governments, which scuppers any expansion into mobile, for instance. But then you have to balance against downside, and current valuations seem to be ignoring that.

> How does Google make money?

Targeted advertising on search queries. Notably, people don't tend to ignore that quite as much.

Google is probably overvalued on their current business model too, but they don't have the reputation hit that Facebook does, and they do have the engineering talent to diversify. For instance, licensing software to build self-driving cars would also be lucrative. Google Glass would be lucrative as well.

> Talk about hand-waving. Have you actually done this?

OK, looking back, I overstated it a bit. Facebook's valuation makes sense if the entire world population were active Facebook users, but almost only then.

The most optimistic projection for Facebook's revenue is 5B for 2012, on less than 1 billion active users. Population of the Earth is just less than 7 billion. So let's magically sign almost all of them up for Facebook; that's 35B revenue, which is roughly a third of their valuation. (Well, not really--they aren't going to be as affluent as Facebook's current American and European users, so it won't be as lucrative to advertise to them.) Apple's annual revenue is about a sixth of their valuation. But Apple has a successful history of growing significantly new product categories, having introduced three in the last ten years. And Facebook doesn't have the entire world population signed up yet--presumably if they did, their valuation would rise more.

> Anyway, the burden is not on me to prove how Facebook's revenues can justify their market cap.

So it's up to me to prove a negative then?

> They are still growing, and they're control over key portions of the internet is still increasing. There is absolutely no justifiable reason to believe that their current advertising model is their endgame. Google is obviously scared shitless of them enough to completely retool their entire strategy, and they are not exactly small potatoes.

> I'm not running out to buy Facebook stock, but I think if you want to dismiss Facebook's valuation you need a stronger argument than "their current ad revenue doesn't scale".

More handwaving. Google became an advertising company twelve years ago and that's still the bulk of their business. Is Facebook somehow more likely than Google to build a new revenue stream in a shorter period of time? Are they more likely than Amazon to build new revenue streams, when Amazon has consistently and repeatedly done just that for 18 years?

There's a lot of upside open to Facebook, and nearly all that upside is priced into their stock. But there's also a lot of downside, none of which is priced in. Which is probably the defining characteristic of a bubble valuation.

If "anyone else" includes the people in charge of Facebook, then my argument still stands. You're increasingly taking the tactic of forcing me to argue a negative. Whereas I'm saying--OK, maybe there's an uncertain upside in how Facebook can monetize this information they have, but we're looking at a valuation that takes that uncertainty and treats it as a certainty, while ignoring the equally uncertain downside.

And if you're going to attach that kind of unbounded upside to having so much data--well, why isn't Amazon valued more highly? Unlike Facebook, Amazon empirically knows what I actually spend money on. And they capture most of that value chain, instead of just targeting ads at me.